Regulatory Compliance Update. Hoi Luk, Senior Manager, Financial Services Consulting

Transcription

1 Regulatory Compliance Update Hoi Luk, Senior Manager, Financial Services Consulting

2 What are WE Seeing and Hearing? Supervisory Committee Workshop

3 3 Supervisory Letter SL March 29, 2017 Evaluating Compliance Risk Updated Compliance Risk Indicators Updated Compliance Risk Indicators builds on the current set of indicators and provides additional guidance in assigning compliance risk rating More comprehensive, integrated, and transparent framework in evaluating a credit union s ability to manage its risk of violations and non-compliance with applicable laws and regulations.

4 Supervisory Letter SL (cont d) Does not create a new compliance rating Does not separate consumer compliance from overall compliance 4 Does not impose any new or higher supervisory expectations NCUA s approach remains risk-focused credit union s size, complexity, and risk profile.

5 Supervisory Letter SL (cont d) Three Broad Categories 1. Board and Management Oversight 5 Have you read and discussed this Supervisory Letter with your Credit Union Board and Management Team? 2. Compliance Programs 3. Violations of Law and Consumer Harm

6 Board and Management Oversight Commitment to the Credit Union s Compliance Management System Effectiveness of change management processes 6 Risk management associated with products, services, and activities Self-identification efforts and corrective actions taken

7 Compliance Program The effectiveness of the Credit Union s compliance management system 7 Policies and procedures, training, monitoring and audit programs, and complaint resolution.

8 Violations of Law and Consumer Harm (if applicable) Pervasiveness of the violation Root cause of the violation 8 Severity of the violation or any consumer harm Duration of the violation

9 9 Snapshot Appendix A

10 10 Snapshot Appendix A

11 NCUA Letter No. 17-CU-01

12 NCUA Letter No. 17-CU-01 Supervisory Priorities for 2017 CYBERSECURITY ASSESSMENT BANK SECRECY ACT COMPLIANCE INTERNAL CONTROLS AND FRAUD PREVENTION 12 Have you reviewed, discussed, and modified your internal audit plan, as applicable? INTEREST RATE AND LIQUIDITY RISK COMMERCIAL LENDING CONSUMER COMPLIANCE MILITARY LENDING ACT / SERVICEMEMBERS CIVIL RELIEF ACT

13 BANK SECRECY ACT Group Discussion: As Supervisory Committee Members, what are your concerns? AML Model Validation? How is the BSA/AML/OFAC Program managed at 13 Beneficial Ownership? Marijuana (medical / recreational)? your credit union? Quality of independent testing? Third party risks? Training? ForwhatreasonisBSAontheNCUA ssupervisory Priorities List year after year?

14 Consumer Compliance Military Lending Act Servicemembers Civil Relief Act 14

15 15 Military Lending Act October 3, 2016 Was your credit union prepared and ready? CFPB released exam procedures on September 30, _cfpb_MLAExamManualUpdate.pdf

16 16 Military Lending Act (Quick Recap) July 21, 2015 Final Rule issued by Department of Defense Effective October 1, 2015 staggered compliance dates To all forms of payday loans, vehicle title loans, refund anticipation loans, deposit advance loans, installment loans, unsecured open-end lines of credit, and credit cards. The changes to definitions of credit in the final rule bring any closed or open-end loan within the scope of the regulation, except for loans secured by real estate or a purchase-money loan, including a loan to finance the purchase of a vehicle.

17 17 MLA Rule 36% APR Cap = Military Annual Percentage Rate or MAPR, covers all interest and fees associated with the loan. INCLUDES charges for most ancillary add-on products such as credit default insurance and debt suspension plans Prohibits creditors from requiring service members to: submit to mandatory arbitration and onerous legal notice requirements; waive their rights under the Servicemembers Civil Relief Act; provide a payroll allotment as a condition of obtaining credit (other than from relief societies); be able to refinanceapaydayloan;orbeabletosecurecreditusinga post-dated check, access to a bank account (other than at an interest rate of less than 36 percent MAPR), or a car title (other than with a bank, savings association or credit union).

18 MLA vs. SCRA Don t confuse the requirements between Military Lending Act with the Servicemembers Civil Relief Act. The SCRA protects service members and their dependents (indirectly) on existing debts when the service member becomes active duty. 18 MLA protects service members, their spouses and/or covered dependents at point of origination if they are on active duty at that time.

19 MLA vs. SCRA MLA protections apply to all forms of payday loans, vehicle title loans, refund anticipation loans, deposit advance loans, installment loans, unsecured openend lines of credit, and credit cards (credit cards has been extended to Oct. 3, 2017). 19 MLA protections exclude loans secured by real estate and purchase-money loans, including a loan to finance the purchase of a vehicle.

20 MLA vs. SCRA The SCRA caps interest rate charges, including late fees and other transaction fees, at 6 percent. The MLA limits interest rates and fees to 36 percent MAPR (Military Annual Percentage Rate). TheMAPRisnotjusttheinterestrateontheloan,butalso includes additional fees and charges including: 20 Credit insurance premiums/fees Debt cancellation contract fees Debt suspension agreement fees and Fees associated with ancillary products. Although closed-end credit MAPR will be a one-time calculation, open-end credit transactions will need to be calculated for each covered billing cycle to affirm lender compliance with interest rate limitations.

21 MLA vs. SCRA There is only one set of circumstances that triggers SCRA disclosures. HUD requires that SCRA disclosures be provided by mortgage servicers on mortgages at 45 days of delinquency. This disclosure must be provided in written format only. For MLA compliance, financial institutions must provide the following disclosures: 21 MAPR statement Payment obligation descriptions Other applicable Regulation Z disclosures. For MLA it is also important to note that disclosures are required both orally and in a written format the borrower can keep.

22 Is YOUR Credit Union Prepared?

23 23 Home Mortgage Disclosure Act January 1, 2018 Expands the scope of information relating to mortgage applications and loans that must be compiled, maintained, and reported under HMDA: Ages of loan applicants Points and fees payable at origination Difference between the annual percentage rate associated with the loan and benchmark rates for all loans Term of any prepayment penalty Value of the property to be pledged as collateral Term of the loan and of any introductory interest rate for the loan Contract terms allowing non-amortizing payments Application channel Credit scores of applicants and mortgagors. Identifiers for loans, parcels, and loan originators

24 24 HMDA Rule Key Dates Timeline

25 Sample Data Collection Form

26 26 Bank Secrecy Act 5 th Pillar May 11, 2018 Three core requirements: (1) identifying and verifying the identity of the beneficial owners of companies opening accounts; (2) understanding the nature and purpose of member relationships to develop member risk profiles; and (3) conducting ongoing monitoring to identify and report suspicious transactions and, on a risk basis, to maintain and update member information. With respect to the new requirement to obtain beneficial ownership information, financial institutions will have to identify and verify the identity of any individual who owns 25 percent or more of a legal entity, and an individual who controls the legal entity.

27 Questions? Supervisory Committee Workshop Hoi Luk, CRCM, CAMS Moss Adams LLP

28 28 The material appearing in this presentation is for informational purposes only and should not be construed as advice of any kind, including, without limitation, legal, accounting, or investment advice. This information is not intended to create, and receipt does not constitute, a legal relationship, including, but nor limited to, an accountant-client relationship. Although this information may have been prepared by professionals, it should not be used as a substitute for professional services. If legal, accounting, investment, or other professional advice is required, the services of a professional should be sought. Assurance, tax, and consulting offered through Moss Adams LLP. Wealth management offered through Moss Adams Wealth Advisors LLC. Investment banking offered through Moss Adams Capital LLC.